Serving on a board of directors of a non-profit entity(1) is an opportunity to improve your community and help others, but it comes with certain obligations.

Each non-profit entity, in general, must have a board of directors(2).  There must be at least one director, but the number can be changed as provided in the by-laws(3).  Directors are elected by the members of a company, and unless the by-laws specify otherwise, the director(s) has a one year term and can be re-elected for five successive one year terms(4).  If the by-laws provide, the directors can be broken into groups and have their terms “staggered”.  For example, there may be two directors elected for a one year term and three directors elected for a two year term.  Directors may be removed with or without cause by the members(5) or by a court decision that the director who is being removed has engaged in fraudulent conduct, grossly abused the position, or inflicted harm on the entity(6).  Directors are responsible for appointing and/or removing officers (7).

The Board of Directors have responsibilities.  Generally, unless the by-laws otherwise provide, the BOARD is vested with all authority to act on behalf of the entity, and all of the affairs of the entity are managed under the direction of, and subject to the oversight of the BOARD(8).  The officers only have such authority as allowed to them by the by-laws or resolution by the Board(9). Stated alternately, the Board is ultimately responsible for actions of the officers and actions of the entity.  Unless it is unreasonable to do so, the Board may rely on officers to perform those responsibilities assigned to them(10).  As to particular actions/votes on resolutions, every director is required to act: in good faith, in the best interests of the entity, based on the same care “…person in like circumstances would reasonably believe appropriate…”, and based on appropriate inquiry under the facts and circumstances of the matter under consideration(12).  In making their “inquiry” directors can rely on the representations and reports of officers, employees, lawyers and CPAs employed by the entity(13).

There is personal liability for directors(14).  Directors are liable if they receive an improper financial benefit from the entity.  This can be a transaction where the director has a direct or indirect interest.  There is no liability(15) if the transaction was “fair” at the time it was entered into, or if it was approved by the Board after the director’s interest in the transaction was disclosed and was approved by the Board WITHOUT the vote of the interested director(16).  A director will also be liable if they intentionally inflict harm on the entity.  This could arise from intentionally inflicting harm on the entity and/or intentionally withholding information from the Board(17).  Directors are personally liable if their actions violate criminal law, such as assault or embezzlement.

If you serve on the board of a non-profit entity and need assistance with, or review of, your by-laws, or if you would like further information about board operations and responsibilities, contact the Kreamer Law Firm, P.C. at 515-727-0900 or at www.kreamerlaw.com.

[1] This article will only address non-profit corporations. Trust operate somewhat differently and are primarily governed by the terms of the trust establishing the entity.

[1] Iowa Code 504.801(1) Trusts operate somewhat differently

[1] Iowa Code 504.803

[1] Iowa Code 504.804 and 805

[1] Iowa Code 504.808

[1] Iowa Code 504.810

[1] Iowa Code 504.841(1) and Iowa Code 504.844(2)

[1] Iowa Code 504.801(2)

[1] Iowa Code 504.842

[1] Iowa Code 504.831(3)

[1] Iowa Code 504.831(1) and (2)

[1] Iowa Code 504.832((1)(b)(4)

[1] Iowa Code 504.831(5)

[1] Iowa Code 504.901

[1] Iowa Code 504.833

[1] Iowa Code 504.836

[1] Iowa Code 504.831(2A)

In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the first in a series of blogs wherein I will share my observations and experiences.

There are several “qualities” which are common to Buyers in successful sales/purchases of businesses.  These qualities are:  industry knowledge, personal operational knowledge, capital, access to expertise, and commitment In the next few weeks I will be exploring these qualities with you.  Before you consider buying any business, you should ask yourself if you have these qualities:

This week we are examining industrial knowledge and Personal knowledge.

Industry knowledge. Industry knowledge includes knowing the “market” (both customers and competition), as well as “industry standard” revenue/costs/expense ratios for the business. This information can sometimes be obtained from associations which are comprised of similar businesses.

Personal operational  knowledge. Unlike “old dogs” it IS possible for Buyers to learn “new tricks”. HOWEVER, in most successful transactions the Buyer himself/herself has had PERSONAL experience in the operational side of a business similar to that which they are considering buying. Often one of the terms of a transaction is that the Seller agrees to “train” the Buyer. This approach can be successful if the business operation is not very complicated, or if the business has revenues of less than $250,000. Our experience is that in most (but not all) cases the teacher/pupil model does not translate well to Sellers and Buyers.

A hybrid between buying a business and starting one “from scratch” is the purchase of a franchise. At its core, a franchise is a tested business “model”. Their terms and conditions vary among industries and among companies within an industry, but most offer some level of industry/market knowledge and training of franchisees. Obtaining a franchise can reduce the “learning curve” but it is not a guaranty of success.

If you would like assistance in regards to the purchase/sale of a business, please contact me at www.kreamerlaw.com.